Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes

Bruce James Chapman () and Andrew Leigh ()

The Economic Record, 2009, vol. 85, issue 270, pages 276-289

Abstract: Under the Higher Education Contribution Scheme graduates face a sharp discontinuity in their taxable incomes. At the first repayment threshold, they are required to pay a percentage of their entire income to reduce their debts. This results in an extremely high effective marginal tax rate. Using a sample of taxpayer returns we investigate whether taxpayers bunch below the repayment threshold. We find a statistically significant degree of bunching below the threshold, but the effect is economically small. The result has important implications for the design of income contingent university loan schemes. Copyright © 2009 The Economic Society of Australia.

Date: 2009

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Related works:
Working Paper: Do Very High Tax Rates Induce Bunching? Implications for the Design of Income-Contingent Loan Schemes (2006)
Journal Article: Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes (2009)
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